Sunk cost fallacy

The sunk cost fallacy is the tendency to keep putting money or effort into something because of what has already been invested, rather than basing the decision on what makes sense from this point forward. A sunk cost is money that has already been spent and cannot be recovered no matter what happens next, which means, in theory, it should not factor into a decision about what to do going forward.

In investing, this shows up when an investor keeps holding, or even adds more money to, a losing stock specifically because of how much they have already lost, reasoning that selling now would mean the original money was wasted for nothing. The amount already lost has no bearing on whether the stock is a good investment from today's price, the only question that actually matters is whether that money is better placed there or somewhere else, evaluated fresh.

The sunk cost fallacy often works together with loss aversion and the disposition effect, all pulling in the same direction, toward continuing to hold or add to a position mainly to avoid confronting a loss. The fix is a simple mental exercise, ignoring what has already been spent and asking only whether, starting from today with the position's current price and prospects, this is still where new money should go.